Legal Question in Real Estate Law in California

Gift tax is the least of your worries about such a transfer. See previous responses to questions about shifting ownership to child.

All taxes are imposed when the "taxable event" occurs, which normally is when a transfer of money happens. There is a certain amount you can give as gifts per year but that includes one large lump sum that can be used at any time. When you give a large gift this life time sum is reduced. There is no capital gains tax upon giving the gift because you are not getting anything back. When your children sell their ownership rights their tax basis for calculating capital gains tax is what your basis was.

98% of the time, families are better off in the long run when parents transfer their assets by will or trust rather than addition to title as joint tenants. A trust is generally preferable to a will alone because assets in the trust will pass without probate. An excpetion is the annual tax-free gift, which can be used to pass along stocks or money. Use of a financial planner and/or trust attorney is highly advised.

The previous answers are correct. Just to clarify, though, the issues are as follows. First, there is gift tax payable by you, not them, when you give over a certain amount in a single tax year. I believe it is around $13,500 right now. Anything over that is taxed at the inheritance tax rate. California has an exception to the Prop. 13 reassessment upon transfer rule for parent-child transfers, and an exception to the documentary transfer tax as well, but here is why. The state almost always more than makes up the loss when the property sells. This is because when you inherit property and then later sell it, you only pay capital gains on the difference between the value on the day you inherit and the price you sell for. If the property is received as a gift, however, you pay capital gains on the difference between what the person who gave it to you paid for it and what you sold it for. In addition, for commercial and investment properties, you also pay capital gains on all the depreciation deductions the person who gave it took over the years. So the state government is quite happy to forego their little 1.5% on the new assessed value because they are going to get 10% on everything when it sells. And of course the Feds collect on the old basis, plus depreciation too.